MARKETING MATERIAL
In traditional marketing texts this is one of the most important chapters. In this text its role is (controversially perhaps) more to prepare students for the traditional advice they may be offered (and to ensure that they are able to handle it critically). The direct objectives are:
1. To understand what the mainstays of traditional product strategy are, and what theoretical frameworks underpin these.
2. To understand what shortcomings are inherent in these theories, and the problems these may pose.
3. To understand how these theories, and alternative frameworks, may be used in practice without risking these problems.
This chapter is very important since the supplier's offering is at the heart of marketing. But it is also important for negative reasons. Thus, it encapsulates the key marketing theories which have been heavily promoted, by business academics and consultants alike, in recent years. As traditionally represented in marketing textbooks, however, these theories (which may be valuable in quite specific, usually narrow, areas) are often inflated far beyond their true importance - and offered as general panaceas (and often distorted in the process).
The key objective, possibly controversially, is to put these theories in their true context (where they can offer valuable insights, albeit not universal solutions); and to prepare the students for any distortions of these with which they may be confronted.
In addition, in this second edition, some new frameworks are provided. These offer more direct support for the key areas; such as those traditionally served by the Product Life Cycle.
By
defining the product/service offer (which, in its extended form, will
involve most of the 4 Ps), the supplier defines almost all of the marketing mix.
Perhaps as a result, this area evidences the strongest,
most influential, theories of marketing. The Ansoff Matrix,
covering degrees of diversification, is one example. The most important,
and pervasive, is that of the Product Life Cycle (PLC). A significant
amount of other marketing theory relates to the PLC, and hence the theory behind
this is crucial; if, as the chapter shows, often fundamentally flawed in terms
of practical applicability. It is in this context that an alternative - more
directly applicable - framework, 'The Competitive Saw', is also described. The
other main element of theory is the Boston Matrix, which is also very
influential - albeit also potentially flawed in practical use. This is
based, in part, upon the assumption of 'economies of scale' (or 'learning
effects') which are also explored.
Beyond this theory, the product specification is developed, particularly in the area of quality. The last part of the chapter extends this, in some detail, to meet the specific needs of the service sectorin general and of non-profit organizations in particular.
This is a chapter which is very important; since the supplier's offering (be it a product or service) is what the whole transaction with the consumer revolves around. It is this that satisfies the customer's needs and wants, and at the same time justifies the organization's existence. WHATEVER APPROACH OR FRAMEWORK YOU ADOPT, THE PRODUCT OR SERVICE WILL ALMOST CERTAINLY REPRESENT THE MOST IMPORTANT PART OF THE MARKETING MIX - something it is all too easy to forget in the fever of creating the promotional messages - and the essential importance of the 'product' is a message which must be conveyed to students.
It is also important for another, negative, reason. It contains the most important, or at least the most widely taught, theories in marketing. Students will inevitably encounter these later in their careers and may, if unprepared, be unduly impressed with their power - and accept them uncritically. Unfortunately, as we will see, most of these theories are limited as to their applicability. In probably less than 10% of situations - and then in terms of corporate strategy rather then marketing - is their use to be recommended; and in these situations they can offer a valuable insight. On the other hand, the majority of situations are not amenable to their application; and the results of inappropriate use may be counter-productive or even damaging. Regrettably, though, most of these tools are quite routinely taught (at least in textbooks) as though they were universally applicable - and this would result in widespread abuse if managers did not ignore them in practice (though whether this is due to common-sense or apathy is not clear).
THE MOST UNIVERSALLY APPLICABLE 'TOOLS' IN PRACTICE ARE THOSE (OF SEGMENTATION AND POSITIONING) WHICH WERE DESCRIBED IN THE PREVIOUS CHAPTER (4). If the final positioning is correct (regardless of the method chosen) the product/service package will be optimized.
Despite what is often claimed, a good product or service may survive poor promotion, but a bad product or service (in terms of how the customer sees the overall package) will not survive for long no matter how brilliant the promotion.
The important point here is the concept of the 'package'. What the customer sees as important is often not what the supplier, looking to 'physical specifications', sees. Frequently the image, derived largely from the promotional messages, is the most influential element of this package. The example of Heinz Baked Beans, given in the text, shows just how powerful this process of image building can be. How, rationally speaking, can baked beans be anything other than a commodity? Yet, of course, they are.
On the other hand, questioned at a superficial level about their tastes, customers will typically rate the physical elements as the most important (as would most vendors - who also would see this as customer endorsement of their own good judgement); even though more sophisticated, in-depth research would show otherwise. Beware superficial replies from customers, especially when they are trying to be helpful!
Beware also a single-minded focus on price. This is discussed in a later chapter, but it also rears its head (usually in terms of a trade-off against quality) in the context of 'product'. Michael Porter's work is a rich source of ideas, covering a wide spectrum of approaches, but it is all too often refined down by less able commentators to a pricing (or costing) issue.
Paradoxically, in a book about marketing which insists that the prime focus must always be the customer, genuinely expert marketing often starts with the product or service itself. The brand manager, say, first spends some considerable time finding out exactly what he or she is managing. Only then will he or she start the process of understanding the consumer; in the light of what has been learned about the 'product'.
The most important feature of this process is that it is iterative. The brand manager returns from this stage to his or her view of the 'product' in the light of this new knowledge about the consumer, and modifies his or her perceptions of that 'product' (and then returns to the consumer and so on, in ongoing 'audit cycles', until the overall picture stabilizes - and is complete)
The initial 'physical' product audit may be quite extensive. Ideally it should generate the beginnings of a facts book - the document containing all the key facts about the brand (which is regularly updated to provide the 'database' behind the decision-making processes, especially those leading to the production of the marketing plan - which are discussed in the final chapter).
activity
A useful exercise at this stage is to get the students to prepare the 'product profile' part of this facts book; the key facts about the brand package (especially, in this first cut, its 'physical' elements) - though put in the context (as far as possible) of the consumer's view. This should ideally be on the basis of the organization the student is following in the 'audits'; but it could be a joint project about a well-known brand (preferably one in which the package is relatively simple, so the exercise is not too time consuming).
When the consumer's views are fully taken into account this may be used as the 'benefits analysis'. Here the 'product features', which are normally used to describe it, are replaced by the 'benefits' - what the consumer thinks he or she gains from using the brand (and it may be status rather than simple transportation which justifies the price the Porsche owner pays).
The pitfall to avoid here is that often seen in sales training (where it is described as 'feature/benefits analysis'). In such training it usually means transposing the more obvious 'physical' features into 'benefits'; but as decided by the sales personnel themselves, without any input from the consumers! The key point about benefits is that they are what the customer sees; not what the vendor thinks they should see!
This review may be especially problematical for those in the non-profit sector; not in terms of their own perspective, for this is likely to be quite strongly held, but in the light of their clients' views - which may be very different. The problem may be that the culture demands a commitment to what is best for their clients - whether they want it or not!
You will recognise that this section is a gentle introduction to the Ansoff Matrix. This is the first of the main theories to be encountered. It is also the simplest to explain. So it is well worthwhile spending some time explaining the general principles. In particular, it is a useful introduction to 2 × 2 matrices, which are widely used in such theories. These are no longer described in the second edition of the student text, but you may wish to briefly discuss the issues involved; as described below.
No matter how sophisticated the claims made for them, all matrices are essentially simple. In some instances they are derived from two-dimensional 'positioning' graphs. The product positions are plotted; and, as we saw in the last chapter, the origin is at the centre. This gives four quadrants; which then become the four boxes of the 2 × 2 matrix. Which quadrant each product falls into determines the category (box) to which it is assigned.
Complexity can be added where the origin is not at zero, but at some other critical level; as in the Boston Matrix, where it lies at 1.0 in terms of relative share and 10% for market growth rate.
[Acetate 5.07]
Crosses or circles may be used to mark their position (in the latter case the area of the circles representing the volume/value of sales).
In other cases the position of the product may be judged subjectively, and in theory at least the Ansoff Matrix comes into this category. Otherwise the mapping proceeds as above.
[Acetate 5.08]
More generally, the four boxes become pigeonholes to which the various products are posted (without considering their position within them) depending upon a very general judgement as to their characteristics.
[Acetate 5.09]
Though 2 × 2 matrices are normally used, because of their simplicity, 3 × 3 matrices are sometimes used - giving nine boxes. The principles are the same.
At the end of the day the result is four (or nine) groups of products. These may be given 'explanatory' titles, such as in the Ansoff Matrix;
[Acetate 5.10]
MOST IMPORTANTLY, THOUGH, THEY ARE THEN ALSO ASCRIBED CERTAIN PERFORMANCE CHARACTERISTICS - depending upon which of the four boxes they have been allocated to.
[Acetate 5.11]
THE ORIGINAL AMBITIONS OF MOST MATRICES WERE QUITE LIMITED - which is understandable when the gross simplifications they contain are taken into account. Their inventors, who were usually sophisticated academics, well recognized these limitations; the much wider-reaching claims have typically come from later 'evangelists'.
LIMITED FACTOR INPUTS
For a 2 × 2 matrix there can be only two true dimensions, and these are usually so generalized (old/new market versus old/new product in the case of Ansoff) that they can contain only very limited information.
SUBJECTIVE ALLOCATION
Which box to put a product into is often a very subjective decision - or, even worse, allocation is by a (just as subjective) points system which appears scientific (but merely hides the assumptions). Once the product is in the box, however, its given characteristics acquire a gloss of respectability which the original judgement would not have had - which often deludes users (not least into a false sense of security).
BLACK AND WHITE OUTCOMES
Probably the worst feature is that outcomes are limited to just four categories, and are black and white - with no shades of grey. A hair's breadth to one or other side of the dividing line and the strategy for a product changes totally (invest in one and kill the other).
The above criticisms should not discourage students from using matrices; but they should persuade them to use them properly. MATRICES SHOULD BE USED TO OBTAIN A DIFFERENT VIEW OF THE PRODUCT - WHICH SHOULD BE COMBINED WITH ALL OTHER INFORMATION TO BUILD AN OVERALL, BALANCED PICTURE.
[Acetate 5.12]
This matrix is exclusively about decisions which expand the coverage of the product. As such it is limited to these categories of decision-making, which typically represent less than 10% of potential sales in the short term. Most organizations, therefore, will be expending their resources, and their main effort, in the 'market penetration' box. This matrix has little to say about this, especially in terms of marketing. INDEED THE ANSOFF MATRIX HAS LITTLE TO SAY ABOUT MARKETING IN GENERAL - IT IS REALLY A TOOL OF CORPORATE STRATEGY. Its presence in the marketing tool kit probably says more about the desperate search for such 'scientific' approaches rather than about its relevance!
MARKET PENETRATION
Thus, this is business as usual! Within it, though, the search for expansion usefully throws up two opposite solutions:
[Acetate 5.13]
These demand very different approaches. The first revolves around persuading existing users to use more. This might come about simply by reducing the price, so that customers can afford to use it more (and perhaps displace a substitute). On the other hand, even better is to find a justification for using it more often - such as 'Heinz Baked Beans are high in fibre and should be eaten regularly.' This expansion of usage is often overlooked in the excitement of the competitive battle.
The second is simply that of increasing brand share, taking business from other suppliers; the competitive battle at its most obvious.
Perhaps the most useful aspect of Ansoff's work is that he splits product development in its most general sense into four quite separate activities:
MARKET PENETRATION - as indicated above, continuous development of the existing brand to maintain and improve its existing position. That is, its target position remains unchanged (but its match to that target should be progressively improved).
PRODUCT DEVELOPMENT - this relates to a significant extension of the product/service's capabilities (but still within the existing market). This may be to improve its positioning within a segment (often thought of by managements simply as improving its competitive advantage) or to extend it into another segment. The key is that its target position is moved (hopefully to a more favourable one) or, more likely, that a new member is added to a range in a position some distance from the existing ones.
MARKET EXTENSION - in this case the range of the product or service is changed to extend outside the existing overall market. It demands significantly new uses for it. As a result, this type of extension is often achieved not by changing the product (though this may happen as well - typically in the form of a new product added to a range) but by redefining how it is used or what it is used for.
DIVERSIFICATION - this is rather different. The essence of it is the jump into the unknown (both new product and new market!). The major element to be considered here is RISK. This is the hidden message behind all aspects of the Ansoff Matrix. The further you move away from the existing product in the existing market (i.e. the top left of the matrix) the greater the risk y/u incur as you enter ever more unknown territory. THE RISK IS HIGHEST IN DIVERSIFICATION - ONE LESSON WHICH SHOULD BE DRAWN FROM THE ANSOFF MATRIX.
[Acetate 5.15]
Drucker approached the same problem from a rather different direction (and without the benefit, or gimmick, of a matrix - so he did not become as famous in this field as Ansoff). He, in effect, combines both product development and market extension under the single heading of 'additive'. In other words, the essence here is gently probing beyond the existing boundaries of the business; without changing its character.
He then splits diversification into two parts. The 'breakthrough' is the extreme which Ansoff hints at; something which is well beyond the experience of the business - and with considerable risk. It fundamentally changes the character of the business. 'Complementary' (or convergent) diversification, however, is what many organizations dream of; a new product or service which uses existing experience but adds a further dimension to produce a wholly new offering. Most organizations enter upon diversification believing that it is 'complementary'; only to discover that it really falls into the breakthrough category (but only in terms of its risk).
This is probably the most important, and certainly the best-known and most widely taught, marketing theory. IT IS IMPERATIVE, THEREFORE, THAT YOUR STUDENTS UNDERSTAND IT - OTHERWISE THEY CANNOT BE IMMUNIZED AGAINST ITS SEDUCTIVE LOGIC!
Its great attraction lies in seeming to be self-evident; nothing lasts for ever - products must be born and eventually die. Perhaps its most seductive aspect, however, is its implicit use of the analogy of the human life cycle. This is rarely made explicit, yet it underpins much of the theory - and managers see its effects all around them (and relate it to their own very human future).
As a result it represents a very powerful concept.
the problem is that it is fundamentally flawed. in general the relevant cycles, if they exist at all, are too long to be taken into account in normal marketing plans. as a result there are few products or services where it offers meaningful insights; and even in these cases the cycle is usually applied by vendors and/or regulators rather than by the market, by the customers. the fashion markets, where its use might be justified, signally fail to consider it!
[Acetate 5.16]
This is the well-known shape of the curve. The stages are:
[Acetate 5.17]
These are introduced clearly in the student text, so I will not develop them here. Instead I will here comment upon how applicable each stage is to real life. When, and if, you introduce this criticism to the students depends upon your own approach to this subject. You need, in any case to make them aware of the PLC's existence. I believe you should also make them well aware of its flaws; but, despite the scepticism of leading academics about the PLC, few other textbooks do so - and the choice is yours to make.
In terms of its practical value, the main problem with the PLC is that most successful products spend most of their time in the maturity phase. Indeed, at any point in time almost all successful products will (by definition) be in this phase. The length of this phase may typically be very long; measured perhaps in decades rather than months (except, most obviously, in the case of fashion products).
To give an indication of the scale of the problem, research undertaken, by myself, using data from TGI (Target Group Index) covering 930 brands across 150 FMCG markets over 20 years showed that the majority (54%) of the 150 brand leaders in 1969 remained the brand leaders in their respective markets/segments in 1989. A mere 7% had declined below fourth place and only 1% had been discontinued. This relative absence of evidence of the end stage of the life cycle is, by itself - given the two-decade timescale - far from what the life cycle theory would predict. Even the brand managers of the brand leaders which had changed over this period emphasized the importance of long term investment and strategies.
As a result, the PLC has very little to offer the majority of marketers; who are concentrating on maintaining successful products. Indeed the flat, featureless plateau which is seen to be 'maturity' may delude a marketer into thinking that little is happening (though, fortunately, most marketers are soon reminded of the real life perils and vicissitudes facing even successful brands).
The most important lesson delivered by the PLC is a graphic reminder of the potentially imminent mortality of the product or service; but Michael Porter's work achieves the same result without the danger that the manager expects an early retirement for the brand.
On the other hand, this phase is usefully descriptive of the features which commonly can be observed in a new product/service launch; though the 'logistic' (S-shaped) curve says much the same with greater accuracy. We will look at these later.
This is an extra stage added to some PLCs. There is, however, very little evidence to suggest that this form of competitive marketplace can be ascribed to one stage of the PLC. Again, Michael Porter's work offers far more useful explanations - and, indeed, real life holds far fewer combative competitive situations than either would predict.
This is the aspect where the PLC makes its unique contribution. The death of products is otherwise rarely discussed.
UNFORTUNATELY IT ALSO REPRESENTS THE MOST DANGEROUS ASPECT OF THE PLC.
The major problem is that it emphasizes that decline is natural and inevitable. It can seductively persuade managers who follow the lessons of the PLC to be constantly on the look-out for the first symptoms of decline; so that they can immediately switch strategy to take account of this shift into the final phase. The decline then becomes a self-fulfilling prophecy. In reality temporary dips are natural for successful brands which (given the correct form of resuscitation) recover to soldier on.
The decline phase, when it genuinely occurs, is usually very much under the control of the vendor. Its shape is determined by the strategies the vendor adopts - once it is calculated that its performance (albeit still in the maturity phase) does not offer the profitability, say, that the organization demands. The subsequent (managed) decline can then be very short indeed - it may even be directly withdrawn. On the other hand, it might be very long - some brands can be profitably milked for years!
The best solution is probably to teach the techniques which have justifiably been developed for use in this phase separately - so that the inevitability (and imminence) of decline is not taught at the same time.
This is the alternative model, alternative to the PLC, we would suggest you teach as the framework for the 'maturity' stage of product and service lives - the stage in which most products are located. It is fully described in the student text.
[Acetates 5.24A to 5.24D]
This approach deals more directly with the challenges faced by mature brands.
When it is extended to the longer term
[Acetate 5.24E]
it offers a considerable insight into one of the main thrusts of this second edition - the role of marketing as an investment in the future development of the organisation rather than as a current cost of operating.
These sections are an introduction to the Boston Matrix, arguably the second most important (and widely taught) marketing theory.
It is important, though, that this topic is very clearly introduced in this context - of cash flow - since this underpins the whole Boston Matrix; its quite specific function is (despite the hype) simply in balancing cashflows across a portfolio of products. This is a relatively specialized function, even in terms of corporate strategy (where the matrix more obviously belongs) and especially in terms of marketing.
Unfortunately, it is often taught as a general tool of marketing; used to back decisions far removed from those concerned just with cashflow. Its true function (limited to cash-flow planning) must be emphasized as strongly as possible.
[Acetate 5.26]
[Acetates 5.27 and 5.27A]
The earlier description of matrices (in this instructor manual - but not in the student text) applies in particular to this most famous example. It should be noted, though, that it is not (in its original, pure form) based on subjective 'opinions'; it plots exactly measured positions (with the areas of the circles representing sales volumes).
Its use, in its original Boston Consulting Group form, was to assist in balancing cash requirements across a portfolio of brands in a number of different markets. It is based upon two assumptions (which may often be true - but not always):
CASH GENERATION - comes from relative market share - the higher the brand share (essentially as brand leader - which is all the Boston Matrix accepts as being of value) the greater the profit.
CASH USAGE - is demanded by market growth rate - new products in new markets need large amounts of cash to develop their position.
These then form the two axes of this matrix. It is important that students are taught to understand these measurements in detail. If, as is normally the case, they are not fully understood students will be likely to make (dangerously) incorrect use of the Boston Matrix.
A hidden assumption here is that of economies of scale. It is assumed that the higher the share the higher the earnings, on an exponential scale. Indeed, it should be noted that the scale on this axis is logarithmic. This is often not taught to students - but the logarithmic nature of this relationship is key.
The other key word is 'relative'. It is the relation to the other brands, not the absolute share, which counts. It should further be noted that the matrix, as correctly taught, is normally centred upon a relative position of 1:1. In other words, the left-hand quadrants (those of value) apply only to brand leaders; and really only to strong brand leaders (those having three times the share of the second brand). Even to approach equality with the brand leader is ambitious for most organizations: the typical brand leader in a stable market has a share twice that of the second brand and three times that of the third. Once again, the fact that this (by definition) applies to very few brands is not usually explained to students - who are often led to believe that it has much wider (indeed universal) applicability.
The positive reason for choosing relative market share is that it contains more information - thus it also says a lot about brand strength (and hence what marketing activities are needed).
It is claimed, with some justification, that brands in markets with high growth rates require investment (in terms perhaps of new production capacity, but more likely of the promotional investment needed to maintain and grow brand share). This is, for many students, counter-intuitive. They think a strong brand in a growing market should be generating cash (and sometimes, if you are very lucky, it is). But generally it eats cash - it is rather like the overtrading effect in very successful small companies (the greater the success the greater the problem - perhaps fatally so).
Again, though, it is a factor which applies to relatively few markets (and hence brands). The key limiting factor is the recommended dividing line between the quadrants, of 10%. This seems eminently sensible, but in fact it restricts use of this part of the matrix to those very few markets which are still in their growth stage. The great majority, in maturity, are not discriminated by this test.
[Acetate 5.28]
THIS IS WHERE THE BIG PROBLEMS REALLY START. It is an excellent example of popularizers' mumbo-jumbo destroying a valid idea. Up to this point in the text the Boston Matrix has offered valid concepts which may be useful in practice - albeit for only a small percentage of cases. But then someone, it is not clear who, simplified the whole thing (probably with the commendable intention of making it easier to remember) by giving it these titles (Cash Cows etc.). These, and not the complexities of relative market share etc, are what most students remember; and they undermine the whole theory.
Students just remember the catchy titles. They simply see the brands within the four quadrants in terms of strengths and potential. Thus, a Cash Cow is not a high-share brand in a stable market (the correct definition), but is simply one that is producing lots of cash. Stars are not those in rapidly expanding markets but are those on which hopes are pinned.
Despite the fact that these titles are probably the best remembered in the whole of marketing theory, this gross oversimplification in fact says almost nothing of value. Worse still it not infrequently engenders several very real dangers:
1) It puts all the emphasis on new products (problem children) and on growing them (stars).
2) By holding out the hope of a move to star status it disguises the fact that most new products are failures; and should be culled as soon as possible.
3) It heavily stresses the milking of cash cows to fund new products; when, in reality, the future of the organization depends primarily upon maintaining the position of these main brands.
4) It tempts managers to look for signs of brands becoming dogs so that they can be written off (once more a self-fulfilling prophecy).
In view of its central position in taught theory, you will need to teach this (Cash Cow) approach; but only so that your students appreciate the problems inherent in it.
activity
It may be useful to continue the debate started about the PLC. This may persuade the students to accept the significant problems posed by the use of 'bastardized' theory!
One of the factors underlying much of the work of the Boston Consulting Group (and much of Michael Porter's work on competitive strategy) is that relating to 'economies of scale'. It is also the driving force behind the strategies adopted by many Japanese corporations (but not all - Toyota, arguably the most successful of all, often achieves its outstanding competitiveness by other means).
Traditionally, economies of scale literally meant building ever larger plants; since much the same overheads were then spread over greater volume (and unit costs/prices thus reduced). This factor related to current volume levels.
More recently the Boston Consulting Group have developed the idea that the link is instead to the cumulative sales volume. The basis for this is the concept of 'experience'. Quite simply, the more you do something the better you become at doing it.
[Acetate 5.29]
Once more it is a seductive concept, and it is supported by some very persuasive examples reported in the literature. It offers, therefore, a very powerful argument for targeting volume above all else. This is, though, a simplistic approach for, as we have already seen, other more important factors may be (and usually are) at work. Thus, we have already seen that the very active investment strategy needed to create dominant leading brands in a market may eventually be fully justified in terms of profit returned, but it is not clear that this process revolves just around passive 'experience'.
Indeed, more recent experience suggests that markets may be moving to a much greater variety. This may be driven by consumer demand or it may just as easily be driven more directly by vendors trying to obtain maximal differentiation - though this probably then reflects consumer demand for those differentiated varieties.
Traditionally there has been a trade-off between variety and economies of scale. The key to success now is to be able to offer variety without losing the cost advantages (at least not to a significant extent) which come from economies of scale. This demands flexible manufacturing which the Japanese corporations pioneered, and have now developed into a very effective means of obtaining competitive advantage.
This is a much less well-known offering from the Boston Consulting Group, but one that they have tended to favour over the more popular version - largely because the advantage matrix is more generally applicable (though, once more, students should realize it is by no means universally applicable).
The two dimensions of the matrix are those we were discussing above: ECONOMIES OF SCALE versus DIFFERENTIATION.
In this case these more popular titles do not cause too much confusion as compared with the more specific ones (Potential Size of Advantage/Numbers of Approaches to Achieving Advantage) sometimes used.
[Acetates 5.30 and 5.30A]
The two obvious extremes are volume business (where only economies of scale count) and fragmented businesses (very segmented or even niche markets where there are no economies of scale but considerable scope for differentiation).
The other two quadrants are contrasted in terms of performance. 'Specialized businesses' is the quadrant one should ideally aim for; with both economies of scale and differentiation, it allows maximal opportunities (and profit) for the winners (who achieve it by segmentation and focus - the classic tools of good marketing). On the other hand, those 'Stalemated' businesses have no means of generating advantage; and, at least in theory, these are the products which are moved off-shore to low wage economies - where the only remaining cost advantage may be gained.
The debate I have explored in all the theories above illustrates the general problems which may be experienced in using such theories. There are a number of points to make - which summarize those made earlier:
[Acetate 5.31]
STARTING POINT - the techniques should usually be the starting point for further (creative) thinking. They should stimulate the collection of further data to investigate the alternatives they suggest. They are useful in offering:
Framework - a way of putting the factors into a structured context
Perspective - they often reveal aspects which would not otherwise have been considered
Unfortunately, most marketing techniques tend to be taught as if they are the finishing point; the action resulting is the final one - which is preordained once the inputs to the matrix or whatever have been specified.
SPECIALIZED - most of the techniques relate to quite specialized aspects of marketing and to only a minority of products/services. Many are highly specialized, applying to only a few per cent of the business of individual organizations.
Within the contexts where they do apply, however, they may offer useful insights. Thus, the Boston Matrix only applies in very few cases but where it does the insight it offers into the potential cash-flow problems (and the possibilities for optimizing such flows) can be invaluable.
Once again, though, many of these techniques are taken out of context and taught as though they were universally applicable. This does a great disservice to the techniques, and is potentially disastrous for the managers who are persuaded to use them in unsuitable contexts.
activity
This section may provide a context for concluding the debate which has been taking place.
Theodore Levitt's suggestion that managements should look at their businesses in terms of the wider market-place(s) has a great deal to commend it. Terminal myopia has afflicted many organizations which have disappeared from the business scene.
The solution is simply to keep an open mind, but there is nothing simple about this when your are immersed in day-to-day problems.
Paradoxically, Levitt's ideas were maltreated in much the same way as other marketing theory. They were once more taken to extremes and not a few organizations (including the oil companies which were the subject of his original articles and also others such as Holiday Inns) were seduced into expanding their businesses far beyond their core competences, with disastrous results.
[Acetates 5.32 and 5.32A]
Hopefully, these dimensions are self-explanatory, as are the related strategies of rationalization (to reduce costs) and stretching (to spread overheads/investment). The main point to stress is that few organizations ever review them. Most line decisions are taken in isolation, and the range is built up (rarely reduced) by default.
The only reason for bringing in this topic at this early stage - when the techniques involved are taught in the last chapter of the book - is to reinforce the fact that the product or service itself must be at the focus of all planning.
The extent to which you dwell on this subject will depend upon your audience.
[Acetates 5.35 and 5.35A]
This is the main section in the book which talks specifically about the marketing of services rather than products. It is not very long, but that is because the marketing of services is addressed throughout the book - and, in any case, much of marketing is identical for both products and services (and it is often only the constant repetition of the word product without reference to service which persuades students that the two have totally different requirements).
CATEGORIES
Much as there is a spectrum from pure products (which are rare, except for commodities perhaps) to pure services (which are probably just as rare, though consultancies might fall into this category), the half of this spectrum which might be considered to generally fall into the service camp also spans a range:
[Acetate 5.36]
Another way of splitting these services, though once more not a definitive one is:
[Acetate 5.37]
The most useful part of this section is the exploration of the four areas where services are quite distinctly different from products. These differences differentiate services marketing from that of products:
[Acetate 5.38]
This is probably the most obvious difference. You simply cannot touch a service. But it is not as big a difference as it may seem, since the most important aspects of product marketing, especially image creation, may well also revolve around intangible benefits.
Intangibility is, however, most obvious in the case of services and this poses the question of 'trust'. Purchasers cannot feel the product before they buy it, they have to buy on trust. The outcome is the greater importance of:
[Acetate 5.39]
PEOPLE
Contact with the people involved, who by default all become sales staff, may offer the most tangible evidence of the quality. If they do a poor selling job the customer may believe, probably justifiably, that the service itself is likely to be of similarly poor quality.
PLACE
The location and the premises may assume much greater importance as evidence of quality (or at least of the investment which has been made).
PROMOTION
This, more than ever, sets the image.
BRANDING
This may be the only 'tangible' thing that the vendor can hang all the image advertising on!
This is a strange concept for most students. The production of the service and its consumption take place at the same time. In many cases this is also the time that the sale is made. This is very different from products where the three activities are usually separate; and are normally dealt with as totally separate functions.
This inseparability complicates the marketing operation. Not least it means that selling face to face often becomes much more important; and the selling is done by the deliverers of the service - who may not be the ideal sales personnel (and who may not even be trained to sell).
[Acetate 5.40]
This comes about largely because of the high people content of most services. The quality is very dependent upon who carries it out, and under what circumstances. Quality control cannot be maintained by the normal measures undertaken by a quality control department; and hence, perhaps, one of the forces driving TQM. The main result is that a higher quality of management may be needed (and a higher ratio of managers to staff).
Inseparability also means that there can be no stock of the service to pull off the shelf immediately (and nowhere to use up spare capacity which isn't being used). This poses major problems of supply, especially where demand has peaks and troughs, which require special remedies (which we will see in chapter 10). Paradoxically, one outcome is that, as we will also see later, even better 'stock control' is needed.
Because the main ingredient is normally people this leads to a range of solutions; not the least of which is the extensive use of part-time staff.
activity
If you have a significant group of students who are involved in, or interested in, the service sector it may be almost impossible to stop a debate taking place at this time. If you have none, you have a choice: to ignore the subject or debate it - since it should be of interest to most students not in the sector (they have many dealings with the sector, and many of its attributes may well also apply to their own sector).
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